Martingale in Forex

Martingale in Forex

The martingale strategy is well-know for gamble players since XVIII century. It consists in the constant parlays’ raise in the case of failure. In such way all previous losses are easily covered by one gain. The size of the parlay becomes minimal, as soon as player wins. This strategy works perfectly in games such as “heads or tails”, “more or less” with payments more than 2 to 1 (if the payments are 2:1, one gain will cover all failures, but nothing more than that). Does this approach is applicable for the currency trading?

In point of fact, not focusing attention on trifles, the currency rate can go either upward or downward. In other words, if to limit the order by the clear values of swaps and profits, than the differences from gambles become minimal. Instead of the parlays’ size, the value of order is increasing and trade stops to depend on the analytics, release of news and other events, which influence the price formation.

In spite of its simplicity, it is not as good, as it should be.

The first problem – the residual on balance: it has to be as large, in order to withstand more than 5 (at least!) sequential upward movements of the order’s value, taking into account the automatic stop, which every dealing center has in case if the deposit size will decrease greatly, for example at InstaForex Company the automatic stop will work out when the deposit size will be 10% of the initial amount.

Secondly, upward or downward movements of the rate must be considered. If a probability of head or tail falling at the endless quantity of gambles tends to ½, then, let say, in the presence of defined downward trend, it will be very hard to make a profitable closure of more than one or two orders in profit of 10 buying commands.

Thirdly, if instead of order’s value increase to put take-profit higher, or to advance it along with values, the probability to “catch loss” uprises (stop-loss activates). Despite all rules of the capital management, it will be needed to keep the ratio stop/profit 1:1. Otherwise, the winning deal can take a number of months.

Finally, the fourth, the psychological factor. Accumulating the critical balance mass (it mean the sum on the balance, which allows trading with large volumes and can lead to the major losses in the case of deal’s unprofitability), it is very hard to control emotions. That is why it is very difficult to start with minimal value of the order, and at the same time, to observe the next loss.

As it seen from above, the martingale works badly as a main strategy. However, for all that, the martingale is a good variant not to recede from the progressive increase of the orders’ value.


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